Nine months before the last of Hitler’s V-2 rockets struck Britain, 730 delegates from the 44 Allied Nations congregated in Bretton Woods to create a new world order, including a monetary system that could resolve the festering economic consequences of the First World War and the Great Depression.
Under the Bretton Woods Agreement, which lasted from 1944-1971, the world’s currencies would be pegged to the U.S. dollar and central banks would be able to exchange their dollars for gold at a set price of $35 per ounce. It was this arrangement that firmly established the U.S. dollar as the global reserve currency. During the early years of Bretton Woods, member states achieved increasing economic cooperation.
The trouble with the system was that global central banks had pegged their currencies at low levels to support exports to the U.S. This led to the accumulation of massive dollar reserves in the hands of foreign central banks. These dollars were used to buy interest-bearing U.S. Treasuries. This structural imbalance created problems that would ultimately compromise the existence of Bretton Woods. Today, global central banks are once again managing the exchange values of their currencies relative to the dollar to ensure export competitiveness
No comments:
Post a Comment